Kosmos Energy Ltd. (KOS - Free Report) looks compelling at the moment. Given the company’s strong fundamentals as well as positive estimate revisions, it seems like this is the right time to add the stock to your portfolio.
Kosmos is a growing exploration and production (E&P) company engaged in the acquisition, development, operation, and exploration of oil and natural gas properties along the Atlantic Margins. The company has operations in Ghana, Equatorial Guinea, Suriname, Mauritania, Cote d'Ivoire and Senegal. Notably, it currently has a Zacks Rank #2 (Buy), which means the company is poised to outperform the market.
What Makes the Stock a Solid Bet?
Higher Output Leads to Earnings Growth
Its diversified production sites in proven, emerging and frontier basins have enabled the company in deploying sustainable exploration and boosting its output. Notably, in the first half of 2018, Kosmos’ total net oil volumes sold came in at 7.7 million barrels, 56.6% higher than the first half of 2017. The strong ramp-up in production is expected to continue during the second half of this year, given its plans to invest $300 million in its operations in 2018. The production growth should translate into increased earnings. For the third quarter of 2018, we expect its bottom line to surge more than 130% year over year.
Deep Gulf Energy Acquisition
Kosmos recently agreed to acquire Deep Gulf Energy from First Reserve, which is a private equity investment firm focused on energy and other shareholders, for $1.2 billion. With this buyout, it will enter the prolific Gulf of Mexico (GoM). The deal is expected to increase the company’s production to 70 thousand barrels of oil equivalent per day (MBoe/d) from 45 MBoe/d. Majority of the output (85%) is expected to be oil. The stock and cash deal will enhance the company’s estimated reserves of 200 million barrels of oil equivalent (MMBoe), as of Jun 30, 2018, by 40% to around 280 MMBoe. The acquisition is an attractive investment choice for Kosmos, providing it with both short and long-cycle exploration opportunities.
Dividend in the Offing
Owing to the acquisition of Deep Gulf Energy, Kosmos expects to generate significant cash flow from the assets, which can enable it to pay dividends to its shareholders starting from the first quarter of 2019. This makes the stock even more attractive for your portfolio.
Estimate Revision & Surprise History
Over the past 60-day period, the stock registered one upward estimate revision, leading to an increase in earnings estimate from 2 cents to 3 cents per share. It is to be noted that the company beat estimates five times in the last seven reported quarters. Kosmos recorded an average positive earnings surprise of 14.7% during the said period.
Impressive Industry Outlook:
The industry, to which Kosmos belongs, currently has a Zacks Industry Rank of 30 out of 255 (top 12%). Studies have shown that 50% of a stock's price movement is directly tied to the performance of the industry group that it belongs to. In fact, an average stock in a strong group is likely to outperform a great stock in a poor industry. Therefore, taking industry performance into account becomes a necessary measure.
Kosmos has gained 26.1% in the past year, outperforming the 15.8% collective growth of the stocks belonging to the industry.
Other Stocks to Consider
Investors interested in the energy sector can opt for other top-ranked stocks like McDermott International, Inc. (MDR - Free Report) , Subsea 7 S.A. (SUBCY - Free Report) and Helix Energy Solutions Group, Inc. (HLX - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Houston, TX-based McDermott is an equipment provider for energy companies. The company’s top line for 2018 is likely to improve 145% year over year. In the last four reported quarters, the company delivered an average positive earnings surprise of 101.7%.
Luxembourg-based Subsea is an oilfield service providing company. In the last four reported quarters, the company delivered an average positive earnings surprise of 318.6%.
Houston, TX-based Helix Energy’s bottom line surpassed the consensus mark in three of the last four quarters, with the average positive earnings surprise being 66.7%.
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